Direct and Indirect Methods of Reporting Two Formats for Reporting Operating Activities Direct Method.. Reports the cash effects of each operating activity.[r]
Trang 1Statement of Cash Flows
Chapter 16
Trang 2Learning Objectives
Describe the purpose of the statement of cash
flows.
Trang 3The Statement of Cash Flows
Provides relevant information about a company’s cash receipts and cash disbursements.
Helps investors and creditors to assess
future net cash flows
liquidity
long-term solvency.
Required for each income statement period
presented.
Trang 4Learning Objectives
Identify and describe the various classifications
of cash flows presented in a statement of cash
flows.
Trang 5Operating Activities
Cash Flows from Operating Activities
Cash Flows from Operating Activities
Inflows from:
Sales to customers.
Interest and dividends
received.
Inflows from:
Sales to customers.
Interest and dividends
Outflows to:
Purchase of inventory.
Salaries, wages, and other
operating expenses.
Interest on debt.
Income taxes.
Outflows to:
operating expenses.
_
Trang 6Direct and Indirect Methods of Reporting
Two Formats for Reporting Operating Activities
Reports the cash
effects of each
operating activity
Direct Method
Starts with accrual net income and converts to cash
basis Indirect Method
Trang 7Direct and Indirect Methods
Direct Method
Indirect
Method
Trang 8Cash Flows from Investing Activities
Cash Flows from Investing Activities
+
Investing Activities
Inflows from:
Sale of long-term assets used in
the business.
Sale of investment securities
(stocks and bonds).
Collection of nontrade
receivables.
Inflows from:
Sale of long-term assets used in
the business.
Sale of investment securities
(stocks and bonds).
Collection of nontrade
receivables.
_
Outflows to:
Purchase of long-term assets
used in the business.
Purchase of investment
securities (stocks and bonds).
Loans to other entities.
Outflows to:
used in the business.
securities (stocks and bonds).
Trang 9Cash Flows from Financing Activities
Cash Flows from Financing Activities
+
_
Financing Activities
Inflows from:
Sale of shares to owners.
Borrowing from creditors
through notes, loans,
mortgages, and bonds.
Inflows from:
Sale of shares to owners.
Borrowing from creditors
through notes, loans,
mortgages, and bonds.
Outflows to:
Owners in the form of dividends
or other distributions.
Owners for the reacquisition of
shares previously sold.
Creditors as repayment of the
principal amounts of debt.
Outflows to:
or other distributions.
shares previously sold.
principal amounts of debt.
Trang 10Cash Flow Examples
- PE-16.1A (Text Book)
- PE-16.1B (Text Book)
- Ex-16.3 (Text Book)
- Handouts
Trang 11Cash Flow Examples – PE-16.1A (Text Book)
Trang 12Cash Flow Examples – PE-16.1B (Text Book)
Trang 13Cash Flow Examples – Ex-16.3 (Text Book)
Trang 14Learning Objectives
Statement of Cash Flow
Example
Trang 17Balance Sheets of Dublin Enterprises($ in millions):
Income Statement For the Year Ended December 31, 2013
-Revenue ……… $2,100 Cost of goods sold………(1,400) Gross profit ……… 700
Operating expenses: Selling and administrative … (355)
Depreciation expense ……… (85)
Total operating expenses ……… (440)
Income before income taxes ……… 260
Income tax expense ……… (78)
Net income ……… 182
Trang 18Balance Sheets of Dublin Enterprises($ in millions):
Comparative Balance Sheets 12/31/13 12/31/12
Assets:
Cash ……… $ 300 ………$ 220
Accounts receivable (net) ………227 ……… 240
Inventory ……….160 ……… 120
Property, plant & equipment ……… 960 ……… 800
Less: Accumulated depreciation …………(405) ……… (320)
Total assets ……….1,242 ……… 1,060 Liabilities and shareholders’ equity: Accounts payable ………145 ……… 130
Selling & Administrative payables ………147 ……… 170
Income taxes payable ……… 95 ……… 50
Long-term debt ……… –0– ……… 100
Common stock ………463 ……… 400
Retained earnings ……… 392 ……… 210
Total liabilities and shareholders’ equity 1,242 ……….$1,060
(S&A: Selling & Administrative)
Required:
Prepare DEI’s 2013 statement of cash flows using the direct method &
indirect method.
Trang 19End of Chapter 16